Viacom the One to Beat in Big Entertainment

Media stocks are trading at some of the highest valuations in recent years yet remain buys among sell-side analysts.

NEW YORK (TheStreet) -- Media stocks are trading at historic highs but that isn't keeping sell-side analysts away from encouraging investors to continue buying shares in the world's largest entertainment companies.

Rupert Murdoch's 21st Century Fox (FOXA) is trading at nearly 25 times reported earnings, its highest level since December 2009. That comes, as Walt Disney (DIS), owner of ABC and ESPN and a formidable children's television and movie business, trades at 22.5 times earnings, its highest level since June 2006.

Regardless of the gains made by Fox, Disney, Time Warner (TWX) and Viacom (VIA) in 2013, sell-side analysts continue to forecast further upside. Fox, for instance, holds a "buy" rating, or its equivalent, from 26 Wall Street analysts compared to five holds and one sell, according to data compiled by Bloomberg. It's unlikely Fox will advance 43% in 2014 as it did last year, or Viacom gaining 67%, but these businesses remains sufficiently vibrant to sustain a largely positive outlook.

The strength of the four large U.S. multi-platformed entertainment companies is largely due to the outlook for revenue growth from pay-TV carriage fees and a rebounding advertising market. All four companies, as opposed to Sony Corp. (SNE), have mostly figured out how to make fewer movies and lower the risk of losing millions on a box office flop while leaving room for pleasant surprises and blockbusters. So, even as Netflix (NFLX) continues to put pressure on the pay-TV bundle, content, rather than cable-lines, continues to dictate the economics of the media business.

If you're holding large-cap media stocks, the question boils down to which of the four stock you ought to own. For Anthony Wible, media and entertainment analyst and a managing director at Janney Montgomery Scott, the answer is Viacom. MTV and Nickelodeon, Wible says, are likely to proliferate as well or better than other media properties on mobile devices. "Money is going to rotate to the platforms and brands that have great second-screen exposure," Wible said. The MTV Music Awards is among the most socially-engaged television events of the year.

Disney, Wible points out, will be making the transition to a higher-costing deal with the National Football League in 2014 while Time Warner's strengths aren't nearly as untapped as Viacom, Wible adds. Time Warner will benefit from higher affiliate fees later in 2014 but that's already well appreciated by investors. Meanwhile, CEO Jeff Bewkes still has work to do to correct problems and lower the debt load at Central European Media Enterprises, of which it owns a 49% stake.

Meanwhile, Viacom has created a spin-off of Dora The Explorer for pre-schoolers, called Dora And Friends, which Dauman says will create new opportunities for licensed products while expanding Nickelodeon's reach into emerging markets. Viacom is also creating scripted shows for MTV and Spike.

Apart from the viability of Viacom's MTV and Nickelodeon to flourish on mobile, Viacom CEO Philippe Dauman also continues to direct a large amount of cash flow relative to the company's $38.9 billion market cap toward buying back the New York-based company's shares.